“An Umbrella that Melts in the Rain”

Medical problems contribute to a large proportion of bankruptcies. I wonder how much a health care plan that protects people from losing everything when serious illness hits would have helped to soften the economic crisis: Illness, medical bills linked to nearly two-thirds of bankruptcies, EurekAlert: Medical problems contributed to nearly two-thirds (62.1 percent) of all bankruptcies in 2007, according to a study in the August issue of the American Journal of Medicine that will be published online Thursday. The data were collected prior to the current economic downturn and hence likely understate the current burden of financial suffering. Between 2001 and 2007, the proportion of all bankruptcies attributable to medical problems rose by 49.6 percent. The authors’ previous 2001 findings have been widely cited by policy leaders, including President Obama.

Surprisingly, most of those bankrupted by medical problems had health insurance. More than three-quarters (77.9 percent) were insured at the start of the bankrupting illness, including 60.3 percent who had private coverage. Most of the medically bankrupt were solidly middle class before financial disaster hit. Two-thirds were homeowners and three-fifths had gone to college. In many cases, high medical bills coincided with a loss of income as illness forced breadwinners to lose time from work. Often illness led to job loss, and with it the loss of health insurance.

Even apparently well-insured families often faced high out-of-pocket medical costs for co-payments, deductibles and uncovered services. Medically bankrupt families with private insurance reported medical bills that averaged $17,749 vs. $26,971 for the uninsured. High costs – averaging $22,568 – were incurred by those who initially had private coverage but lost it in the course of their illness.

Individuals with diabetes and those with neurological disorders such as multiple sclerosis had the highest costs, an average of $26,971 and $34,167 respectively. Hospital bills were the largest single expense for about half of all medically bankrupt families; prescription drugs were the largest expense for 18.6 percent.

The research, carried out jointly by researchers at Harvard Law School, Harvard Medical School and Ohio University, is the first nationwide study on medical causes of bankruptcy. …

Subsequent to the 2001 study, Congress made it harder to file for bankruptcy, causing a sharp drop in filings. However, personal bankruptcy filings have soared as the economy has soured and are now back to the 2001 level of about 1.5 million annually.

Dr. David Himmelstein, the lead author of the study and an associate professor of medicine at Harvard, commented: “Our findings are frightening. Unless you’re Warren Buffett, your family is just one serious illness away from bankruptcy. For middle-class Americans, health insurance offers little protection. Most of us have policies with so many loopholes, co-payments and deductibles that illness can put you in the poorhouse. And even the best job-based health insurance often vanishes when prolonged illness causes job loss – precisely when families need it most. Private health insurance is a defective product, akin to an umbrella that melts in the rain.” …

According to study co-author Dr. Steffie Woolhandler, an associate professor of medicine at Harvard and primary care physician in Cambridge, Mass.: “We need to rethink health reform. Covering the uninsured isn’t enough. … Only single-payer national health insurance can make universal, comprehensive coverage affordable… Unfortunately, Washington politicians seem ready to cave in to insurance firms and keep them and their counterfeit coverage at the core of our system. Reforms that expand phony insurance – stripped-down plans riddled with co-payments, deductibles and exclusions – won’t stem the rising tide of medical bankruptcy.”

Dr. Deborah Thorne, associate professor of sociology at Ohio University and study co-author, stated: “…Families who file medical bankruptcies are overwhelmingly hard-working, middle-class families who have played by the rules of our economic system, and they deserve nothing less than affordable health care.” [A copy of the study is available at here.]

It is important not to make too much out of the month-to-month changes in the bankruptcy filing rate. It is the long-term trend that matters, and the graph … shows how the long-term trend is heading us back toward the daily filing rate before the 2005 law was enacted. …

Originally published at Economist’s View and reproduced here with the author’s permission.

One Response to "“An Umbrella that Melts in the Rain”"

CHRIS DAVIS June 6, 2009 at 1:48 am

o 23 out of 24 OECD nations have already instituted rationing of surgical procedures for seniors, whereas, in the USA, no amount of surgeries and tests are “too many”, so, of course, we will see many, many “medically” induced bankruptcieso Recent issue of “New Yorker” magazine has great piece on negative returns in McAllen TX from Medicare subsidized overspending on surgeries and testso American electorate, because it’s largely policy illiterate, has demonstrated no serious interest in attacking this issue